ITAD Ruling No. 221-02

December 27, 2002 ITAD RULING NO. 221-02 NIRC, Sec. 106 VAT Ruling No. 146-90 BIR Ruling No. 318-93 DA-ITAD 63-02 International Labour Organization NEDA sa Makati Bldg., 106 Amorsolo St. Legaspi Village, Makati City Attention: Carmela I. Torres Officer-in-Charge and Deputy Director Gentlemen : This refers to your letter dated May 31, 2002 requesting reconsideration of BIR Ruling No. DA-ITAD-63-02 dated April 24, 2002 wherein this Bureau denied your request for tax exemption on the purchase of one (1) unit Honda CRV 2.0 M/T Model 2000 for the personal use of Mr. David James Lamotte (Mr. Lamotte). It is represented in your previous application dated October 15, 2001 that Mr. Lamotte, Senior Enterprise and Management Development Specialist of the International Labour Organization (ILO) purchased the above motor vehicle from Francesca Agnello, Poverty Reduction Specialist of Asian Development Bank (ADB) and a tax-exempt person who therefore purchased the above motor vehicle without paying the value-added tax (VAT). It is now your contention that Mr. Lamotte is a privileged person as evidenced by United Nations Identity Card No. 90896-R issued on January 16, 2001, and therefore not subject to Philippine taxes. Furthermore, it is also alleged that the Office of Protocol, Department of Foreign Affairs (DFA) did not interpose any objection to your request in its DFA Letter No. 21435 dated July 24, 2001 citing as basis Article VI of the Convention on Privileges and Immunities of the Specialized Agencies of the United Nations. In reply, please be informed that upon a careful review of your case, this Office hereby reiterates its denial of your request for lack of legal basis. Further to the reasons provided under BIR Ruling No. DA-ITAD-63-02, Article VI, Sections 19, 21 and 22 and Annex I of the same Convention provides, viz : "Article VI OFFICIALS "xxx xxx xxx" "Section 19 Officials of the specialized agencies shall: (a) Be immune from legal process in respect of words spoken or written and all acts performed by them in their official capacity; (b) Enjoy the same exemptions from taxation in respect of the salaries and emoluments paid to them by the specialized agencies and on the same conditions as are enjoyed by officials of the United Nations; (c) Be immune, together with their spouses and relatives dependent on them, from immigration restrictions and alien registration; (d) Be accorded the same privileges in respect of exchange facilities as are accorded to officials of comparable rank of diplomatic missions; (e) Be given, together with their spouses and relatives dependent on them, the same repatriation facilities in time of international crises as officials of comparable rank of diplomatic missions; (f) Have the right to import free of duty their furniture and effects at the time of first taking up their post in the country in question. "xxx xxx xxx" "Section 21 In addition to the immunities and privileges specified in sections 19 and 20, the executive head of each specialized agency, including any official acting on his behalf during his absence from duty, shall be accorded in respect of himself, his spouse and minor children, the privileges and immunities, exemptions and facilities accorded to diplomatic envoys, in accordance with international law." "Section 22 Privileges and immunities are granted to officials in the interests of the specialized agencies only and not for the personal benefit of the individuals themselves. Each specialized agency shall have the right and the duty to waive the immunity of any official in any case where, in its opinion, the immunity would impede the course of justice and can be waived without prejudice to the interests of the specialized agency." "ANNEX I INTERNATIONAL LABOUR ORGANIZATION In their application to the International Labour Organization the standard clauses shall operate subject to the following provisions: "xxx xxx xxx" 2. The privileges, immunities, exemptions and facilities referred to in Section 21 of the standard clauses shall also be accorded to any Deputy Director-General of the International Labour Office and any Assistant Director-General of the International Labour Office. 3. "..." (iii) Privileges and immunities are granted to the experts of the Organization in the interest of the Organization and not for the personal benefit of the individuals themselves. The Organization shall have the right and the duty to waive the immunity of any expert in any case where in its opinion the immunity would impede the course of justice, and it can be waived without prejudice to the interests of the Organization." DcCHTa It is evident that the intention of Section 21 and Annex 1 (2) supra is to place the Executive Head of the ILO or any official acting on his behalf, including the Deputy Director-General and the Assistant Deputy-General, at par with diplomatic envoys insofar as privileges and immunities are concerned, including tax exemption. It is noteworthy that only the executive head, the Deputy Director and Assistant Director General of the ILO are accorded these privileges. Accordingly, this provision cannot justify tax exemption in favor of Mr. Lamotte since he is neither the executive head nor a Director-General of the ILO. Therefore, contrary to your opinion, the privileges and immunities accorded to officials and experts of the ILO as enumerated under Section 19 as aforecited do not include exemption from indirect taxes. Exemption from taxation is limited in respect of the salaries and emoluments received by the said ILO officials. Even granting for the sake of argument that the enumerated privileges and immunities include exemption from indirect taxes, Article VI, Section 22 and Annex I (3)(iii) of the same Convention provide that such privileges and immunities are granted to officials and experts in the interest of the ILO and not for their own personal benefit. Hence, since the purchase of the subject motor vehicle is neither official in nature nor in furtherance of the interest of the ILO but rather for the personal use of Mr. Lamotte, then these privileges and immunities will not apply. Your contention that Mr. Lamotte is a privileged person per United Nations Identity Card No. 90896-R issued on January 16, 2001 and, consequently, not subject to Philippine taxes, is without basis. Being a bearer of such card or even a holder of diplomatic identity cards does not necessarily follow that such person shall be exempt from Philippine taxes. Exemption or taxability of an expert or official of a Specialized Agency of the United Nations is governed and determined by the provisions of multilateral agreements to which the Philippines is a signatory, more particularly, the Conventions or Agreements on Privileges and Immunities of the Specialized Agencies of the United Nations. Since the said Convention does not accord VAT exemption on the purchase of a motor vehicle for the personal use of an ILO export, then, Mr. Lamotte cannot be deemed a privileged person with respect to the subject transaction. ( VAT Ruling No . 146-90 dated May 24, 1990 ) As regards the statement that the Department of Foreign Affairs (DFA) did not interpose objection on the subject sale, it is clear that the Office of Protocol Letter No. 21435 shows that the non-objection refers only to the proposed sale and not to the requested tax exemption, which is clearly the jurisdiction of this Office. As a matter of fact, the DFA categorically stated that the sale shall be subject to the provisions of the abovementioned Convention. Finally, the rule shaped out by jurisprudence is that tax exemptions are construed strictissimi juris against the taxpayer and highly disfavored and never presumed by law. Any exemption from the payment of a tax must be clearly stated in the language of law, it cannot be merely implied therefrom. Such being the case, and since Ms. Agnello was exempted from VAT when she purchased the motor vehicle which was no more than a mere suspension of payment, the sale of the motor vehicle by Ms. Agnello to Mr. Lamotte for his personal use shall be subject to VAT imposed under Section 106 of the Tax Code of 1997. ( BIR Ruling No . 318-93 ) Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service